Tucker S. McElroy and Thomas M. Trimbur
Abstract: This paper sets out the theoretical foundations for continuous-time signal extraction in econometrics. Continuous-time modeling gives an effective strategy for treating stock and flow data, irregularly spaced data, and changing frequency of observation. We rigorously derive the optimal continuous-lag filter when the signal component is nonstationary, and provide several illustrations, including a new class of continuous-lag Butterworth filters for trend and cycle estimation.
Keywords: Continuous time processes, cycles, Hodrick-Prescott filter, linear filtering, signal extraction, turning pointsFull paper (753 KB PDF) | Full paper (Screen Reader Version)